Residential rents across freehold areas in Abu Dhabi rose by 2.7 per cent during the first nine months of 2014, much lower than the nine per cent growth recorded during the same period last year, according to the latest report from property consultancy Cluttons.
With average household incomes failing to keep up with the growth in rents, the cost of living is being factored into leasing values, it stated.
“Landlords have been sensitive to the threat of affordability emerging as a core issue for tenants, with many containing rent increases in order to avert an increase in vacancy levels,” said Steve Morgan, CEO, Cluttons Middle East.
“This behaviour is occurring despite the removal of the government enforced rent cap earlier this year,” he added.
While the rent cap provided tenants with a sense of security, its elimination has proved to be “far less controversial” than previously expected and was exceptionally well timed, the report said. Tenant demand remains “stable but strong,” it added.
However, it also found that rents increased by one per cent in Q3, higher than the 0.5 per cent recorded in Q2. Apartments continued to record a higher rate of rental value growth at 1.4 per cent, when compared to villas (0.7 per cent) during the third quarter.
Demand for new apartment schemes also continued to rise in Q3, with Aldar properties recently leasing over 200 residential units in the city’s tallest tower – Burj Mohammed Bin Rashid, within a week of its launch.
Mid-range apartments on Al Reem Island were the strongest performing in Q3, with rents rising by almost six per cent, the report said. But rental value growth in the area remained almost unchanged compared to Q3 last year.
“With an emerging sense of community living, the desirability of Reem Island is expected to rise, which will in turn help to nudge rents upwards gradually in the coming months, particularly as the overall supply pipeline remains thin,” the report said.
Overall, it stated that the Abu Dhabi government’s drive for economic diversification remains a critical element in the tenant demand equation, with the education, healthcare and aviation sectors being amongst the most rapidly expanding.
Cluttons’ international research and business development manager, Faisal Durrani added: “Most mature markets around the world operate freely without government intervention and Abu Dhabi’s rental market is now subject to the usual economic influences, along with the fundamental demand-supply equation.
“That said, the market could benefit from some sort of guidance in the form of a Rent Index barometer; a light touch version of the rental index enforced by RERA in Dubai would probably suit the market best.”
SALES PRICES ALSO SLOW
In terms of residential sales prices, the report found that – similar to Dubai – the pace of growth has slowed in Abu Dhabi, with house prices rising by 1.6 per cent during Q3. Total growth during the first nine months of 2014 reached almost 19 per cent.
“In a similar pattern to the lettings market, apartment values grew at a faster rate than villas during Q3, rising by just over four per cent, against a marginal drop (0.6 per cent) for villas. Clearly the top end of the villa market, in excess of Dhs5 million, is feeling the strain of the federal mortgage cap,” said Durrani.
Rates for high-end villas on Sa’adiyat Island slipped by nearly two per cent between Q2 and Q3.
“In contrast, apartment values on Sa’adiyat Island grew by 2.4 per cent in Q3, as demand for property on the exclusive island continues to gather momentum now that its iconic schemes such as the Louvre and Guggenheim are edging closer to completion,” Durrani added.
However, despite the recent levelling in villa rates, values still rose 24 per cent between January and December this year, the report added.